The Restaurant Business is Shrinking, But Not In The Way You Think

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The Restaurant Business is Shrinking, But Not In The Way You Think

The introduction of the “fast-casual” restaurant means the price for small restaurant properties is rising. Independent owners looking to get in the game can learn what it takes to compete with the elites.

The restaurant industry is currently undergoing a massive shift. As our eating habits evolve, the days of full-size, full-service restaurants may soon be numbered. Delivery and takeout are becoming more popular as people are choosing time efficient methods of dining. Restaurant real estate is in high demand all over the country. Footprint sized properties, ranging from 1,500 to 2,500 square feet, are becoming more desirable every day to accommodate the rising demand for lunchtime crowds.

Smaller restaurants have seen a boom in places where labor wages are higher, like New York. These fast casuals are unlike anything previously seen and are adopting new strategies and tactics to remain relevant in today’s restaurant industry.

It’s a Landlord’s Market

With the increase in demand for smaller spaces, it has become a landlord’s market. Restaurant property is more expensive than other types of commercial property because it typically needs to be equipped with specific amenities such as ventilation, electrical hook-ups, etc. Because of the long list of requirements, landlords are naturally selective about which restaurants will rent their buildings.

The bigger chain restaurants have caught onto this trend and are snatching up smaller properties as fast as possible. This makes it harder for independent owners to get into the game. Even though most independent restaurateurs are willing to pay a hefty lease rate, landlords are sometimes more likely to rent their spaces to bigger companies who have proven track records and big bank accounts.

How does an independent restaurateur get one of these properties among so much competition?

When it comes to selective landlords, aspiring restaurateurs may need to convince them that their business plan is viable and their concept unique. Individual property owners are (of course) attracted to tenants who have both name recognition and solid financial backing, especially in high rent areas.

On the flip side of that, larger corporations who own footprint sized restaurant properties are more likely to take a risk on an independent restaurateur with a solid business plan and concept. These corporations can financially cover the risk, so if the restaurant becomes the next big thing, they can capitalize.

Restaurateurs should also be sure to follow the model of the fast-casual restaurant and (if need be) adapt their business plan to fit these smaller spaces. The more use a restaurateur can get out of each square foot of space, the higher the profit margins.

For example, newer restaurants are using square footage (formerly reserved for a dining room) for more practical purposes such as an exposed kitchen. Some property owners are even taking this advice and maximizing their space by buying a full-size property and dividing it into sections, renting each section out to smaller operations.

Patrick Christensen, President at Horizon Retail Construction sees these changes in the industry and knows what is important when it comes to building out a restaurant space. “We are experts in the roll out of retail and tenant contracts. We create collaborative experiences with everybody we work with and for, including the landlords. Whether we are contracting them directly or someone else contracted them. Those synergies are very important to our customer.”

Chasing Millennial Money with Bells and Whistles

Many fast-casual restaurants today are after millennials. This group is made up of 18-33 year-olds and represents a possible 1.3 trillion dollars in revenue for restaurants. Millennials are a highly sought after segment to restaurants because of their dining habits. According to a 2014 USDA analysis millennials spent 44% of their budget for food on eating out compared to the 40% baby boomers spent. This growth increase in dining out is not expected to wane. As Millennials grow older, they will have more expendable income for eating out, making them a coveted demographic for restaurants to please and retain.

What are the specific needs a restaurant has to fill to attract millennials?

Millennials tend to gravitate to places that are on the cutting edge of customer technology.
Incorporating things like TVs, games, WIFI and payment kiosks can enhance the dining experience, attracting millennials.

A great example is Buffalo Wild Wings (BWW), which carved out their own niche in the millennial market by making themselves synonymous with a cheaper alternative to sporting events. BWW features multiple TVs, games, and high-speed WIFI. Adding technology to the atmosphere increases the perceived value among millennials. BWW satisfies their target market’s appetite for entertainment and specialty cuisine.

Dave & Busters is another example of a restaurant that saw exponential growth due to its revolutionary gaming/dining concept. As restaurants continue to morph and develop with the times, we will likely see more and more technology integrated, possibly in the form of touch screen menus and other fun gadgets.

Not all new restaurants will be able to use technology to cater to millennials. It’s up to restaurateurs to create a unique idea to make their restaurant stand out. One potential avenue is to leverage the apps on a smartphone. Restaurants with apps that allow for rewards programs and simplified payment methods are quickly becoming the status quo. With an app, it is much easier for a restaurant to build and retain a connection with their patrons.

Customers will now have an easy point of access for information to answer their questions, order food, pay the bill, and find deals. Some apps even have the capability to communicate with the management staff directly. The intention is to build a relationship with the consumer that is appealing on a personal level. Businesses can also use the app to let people know of special events or even offer exclusive content for app users, further increasing customer engagement.

Other less flashy methods of technological innovation include services like DipJar, Breadcrumb, or other Point-of-Sale (POS) systems:

DipJar is simpler than figuring out the percentage of the bill or counting out cash, should you wish to leave a tip. It is a neat blue box that sits next to the cash register and is designed for you to dip your credit/debit card in the top to automatically charge one dollar. The DipJar lets out a beeping tone to signify to you and everyone around that your tip was successfully taken.

Who doesn’t like to be acknowledged for their good deeds?

Breadcrumb is a POS system designed to accommodate customers and their servers. It offers an interactive platform with options like a menu, refill request, payment portal, and table-side service. Traditional POS systems are helpful but are limited to a station on the wall. The Breadcrumb POS is set at every table and allows customers to interact with their server through an iPad in real time. It offers an easy to use platform that takes roughly 2 minutes of training, which is usually done when the server has their first interaction with the customer.

Fast-casual restaurants are quickly taking over the industry. If independent restaurateurs wish to keep up, they will need to either model themselves after fast casual or innovate in other ways to make sure they offer similar value to big box chains. In the end, it seems that staying on the cutting edge of dining trends is what determines who sinks and who swims as the dining industry evolves.

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